As has been pointed out by numerous folks the the Bank Term Funding Program from the Fed MAY be coming to an end on 3/11/2024. The program is meant to give banks liquidity using certain eligible securities (i.e. treasuries, agency securities and agency mortgage backed securities).
The program outline is here and the ‘terms and conditions’ are here.
Per the terms and conditions the lending facility MAY end on 3/11/2024–meaning that a bank can get a loan on the named collateral up until that point–afterwards???
The securities are valued at Par for the purposes of the loan regardless of how much they are underwater. Obviously a great benefit to banks, credit unions etc.
The point of this note is to remind everyone that as we come toward March it is probably best to know if any of your bank holdings are taking advantage of this program. Most banks have been disclosing these items in their 10-q and/or 10k.
Note that I know little of the program but ‘just in case’ I will check my few holdings and see if those bankers are taking advantage of it. Just don’t want big surprises.
Largest Bank Term Funding Program (BTFP) borrowers
Company Symbol As of date BTFP balance ($ million) % of total liabilities
First Republic Bank (FRCB) 3/31/2023 $13,844 6.40%
PacWest Bancorp (PACW) 3/31/2023 4,910 11.80
East West Bancorp (EWBC) 3/31/2023 4,500 7.40
Glacier Bancorp (GBCI) 3/31/2023 2,740 11.00
Hope Bancorp (HOPE) 3/31/2023 1,400 7.60
Western Alliance Bancorporation (WAL) 4/14/2023 1,300 2.00
W.T.B. Financial (WTBFB) 3/31/2023 850 8.80
Eagle Bancorp (EGBN) 3/31/2023 800 8.10
Associated Banc-Corp (ASB) 4/19/2023 644 1.80
First National Bank Alaska (FBAK) 3/31/2023 350 6.90
Business First Bancshares (BFST) 3/31/2023 310 5.40
Southside Bancshares (SBSI) 3/31/2023 198 2.80
Equity Bancshares (EQBK) 3/31/2023 140 3.00
Northfield Bancorp (Staten Island, NY) (NFBK) 3/31/2023 135 2.70
Avidbank Holdings (AVBH) 3/31/2023 94 4.70
Ames National (ATLO) 3/31/2023 75 3.70
Franklin Financial Services (FRAF) 3/31/2023 50 3.10
1st Capital Bancorp (FISB) 3/31/2023 40 4.50
Truxton (TRUX) 3/31/2023 40 4.70
Thanks Eyeman, I only own one of these. Not surprised Hope is on here. Los Angeles bank people on SA said was safe as it serves and loans to the Asian community but it got caught in the downturn.
Thanks Eyeman
Funny , I don’t see ZION on here ?
The facility should end as banks are now abusing it by borrowing from the Fed via BTFP at a lower rate and then parking those funds with the Fed in another account that earns a higher rate, making a risk free spread. Of course, just because it should end doesn’t necessarily mean the Fed will stop handing out free lunches to banks.
@Westie 18,
I don’t remember what year it was, but a few years ago when banks started dying, many people questioned whether the FDIC was going to stay solvent.
And as for the Fed, remember 1929-30whatever? Remember LTCM? The Fed can only save us if they do the right things at the right time.
I am sticking with my TBTF (too big to fail) banks. My take is if they are at risk, the Fed will extend the program. I recently purchased a small amount of Third Avenue Bancorp (FITBI). 10% of the amount that I purchase for a core holding. A tiny taste since the yield jumped to about 9.32% (now callable with a 30-day notice).
As a former “too big to fail” banker….. don’t expect it to be as much of a problem as you may fear..
You all are leaving an important piece of data out:
Banks are the backbone of the economy and they are highly regulated. Plus, this is an election year.
The regulators and the Fed will do whatever they need to do [without Congress] to ensure there is no run on the banks that would endanger a) the economy; and b) the FDIC.
Kinda the opposite of the Black Swan.
I have no idea how they’ll solve the issue
BUT
IMHO
They will
Beyond this one situation, there still is $6 trillion of CRE exposure, the majority of which is financed by regional banks (Too Big To Fail Banks don’t do a lot of CRE)
I would recommend that the regional banking sector not be a large part of one’s portfolio mostly based on the fact they now are having to pay for their deposits whereas they did not used to and the CRE issue will have to be dealt with sometime.
Makes sense to me.
Westie, some good points. I would like to add that smaller regional banks are probably not going to be invested in large CRE loans in city centers where most of the damage is taking place. Even midsize regional banks may spread the risk by splitting a large property among several lenders.
This actually plays into my thesis that if a panic was to occur, some of the sound banks stocks may drop in sympathy. One example I can think of is Tim’s holding of BWBBP he researched that bank and found most of its CRE loans where spread out to outlying property in urban areas. Any panic might give investors the opportunity to buy back shares at a lower price than they just sold at.
My concern that I have spoken about before is these big PE funds that are holding CRE that shuffle the doggie doo around to their various subsidiaries. Or as they have done this past year of restricting investors withdrawals
I have some preferred issues of JPM and CUBI. I also hold a bit of MS, a horse of a different color.
My somewhat risky bank I suppose would be Ally, again not a traditional “bank” being online only, offering a brokerage account and selling life insurance. I only have some relatively short term bonds in Ally, rated BB+.
All of the above is about 5% of my IRA.
I understand that most of MS business is in investment banking so problems in CRE should have small effect on that bank. I wonder if I am correct? I hold a position in MS-E yielding around 7% with ex dividened today?
I’m super heavy with bank exposure! YIKES!!!
So I got a desk to send me new financial reports on bank solvency. Over 100 pages, including a new (to me) net worth metric. Pages and pages of overviews on loans. Some was helpful, you could see exposure to comm RE and other loan areas. Ended up with….Something like CRE1-T. How they came to that is 100% beyond me.But what we are seeing is that most the banks purchased the same assets because they qualified under basel standards. So instead of banks specializing in areas of expertise….they all loaded up on….govies…..for instance.
Prices have spiked. We have a chance here to reduce exposure/bail out. Should I /will I?? Oye vey!! Personally I’m 40% cash or less that 24 mo. maturing guaranteed FI.
Tim, its too late in life for me to become a bank analyst, ha. If I tried I would become like PennYlessY thinking I understand everything when I still dont know anything. So most of my analysis revolves around staying away from them. I only own 3 bank preferreds, and two WaFed and AUB-A I own minimal amounts. Under 10k of each. I did notice AUB recently jacked the common divi 7% and like my 3rd one BANFP is in Forbes 2023 Top World Banks. They probably know as much as I do too, I suppose. I do keep a better eye on BANFP being I own more now and have owned off and on for years. This below gives me adequate comfort that is ok for today anyways.
Asset quality remained strong with nonaccrual loans of $16.7 million, representing 0.22% of total loans at both September 30, 2023 and December 31, 2022. The allowance for credit losses to total loans stood at 1.31% at September 30, 2023 virtually unchanged from 1.33% at December 31, 2022. Net charge-offs were 0.02% of average loans for the third quarter of 2023 compared to 0.00% for the third quarter of 2022.
And they mentioned this…. The Company currently does not rely heavily on long-term borrowings and does not utilize brokered CDs.
Now that I got my homework completed, its back to searching for ute deals even if its just a relative one.
Grid, there had been talk about replacing this program with something else, but I can’t remember if it involves Congress. With the current gridlock I doubt something could be passed in time. That leaves maybe extending the current program. Out of the 3 you mentioned WFD has stated that most of their lending has been short term in the construction business. With rates slowly going lower there is a possibility construction stays strong.
I am playing with ASB I haven’t seen their 4th qtr report but they supposedly had a commitment to buy a large part of their underwater loans at discount and expect to post a one time loss in the 4th qtr. With new funds and increasing deposits they should be safe
Charles I just dont get too excited about banks. Just a personal thing. When I first started investing in preferreds about 12 years ago, I researched the past on them. And guess what? About a billion things came up about them going to single digits and smaller ones belly up from GFC. So I have only toyed on the perimeter with them, with good results actually. But I dont have enough financial firepower where I have to force my money into things I have little interest in so I dont.
WaFed has been a very nice trader for me. I dont worry about WaFed, but I dont know anything about Luther they swallowed up, so that doesnt give me any warm fuzzies. My interest level would be higher there if they hadnt bought that and at a price probably too high since it started well over a year ago. Ya never know how the worm turns though. Banc of California is viewed as the savior for PacWest, yet it wasnt about 5 years ago BANC was being viewed with serious suspicion with how they were operating. And so the world turns.
Good memory Grid. Yep, a lot of self-dealing with BANC execs back in 2017 or so. They cleaned house since then.
This program has been a great source of relatively high coupon callable FHLB notes. Hate to see it go!
You can check the borrowing under BTFP at the St Louis FRED website. It has only continued to move up despite long term rates improving. Not promising unless they know an extension is coming.
My bank holdings are meager but I do have some JPM and GS bonds and the LNC preferred. I am not familiar with this program, however.
yazer–I doubt the big ones are utilizing the program too much but it doesn’t hurt to check.
There is a small group of regionals that haven’t borrowed from the federal reserve. I expect them to be unaffected. But like last spring I wouldn’t be surprised that the babies get thrown in with the trash.
CharlesM:
What are those small regionals that you have read are safe?
I’m more in the mind of taking profits on regionals by March, but have an open mind if there is documentation that says an entity is investable.
One I own, No commercial Real Estate
https://seekingalpha.com/filing/8055367
This one I don’t own and quit following, I looked at it last spring, back when it was around $32.00 I was tempted to buy as I know it covers rural areas mostly small businesses and depositors. Had no deposits over the FDIC limit of 250,000 at least when I was looking at it last spring. Good buyout candidate. This is the one WFD should of bought if it was trying to expand into the Ca market.
https://seekingalpha.com/filing/8021386